The Federal Trade Commission has concluded a record year of antitrust enforcement, in both merger and non-merger areas. The Commission's antitrust enforcement efforts helped save consumers an estimated $1 billion in the form of lower prices, according to Richard G. Parker, Director of the agency's Bureau of Competition. The just-ended fiscal year (FY 2000) was marked by a record number of corporate mergers to review and a record number of non-merger enforcement actions, particularly in critical consumer sectors of the economy such as energy, health care, pharmaceuticals and supermarkets. Parker noted that consumer savings from FTC's antitrust enforcement actions in FY 2000 far surpass the agency's antitrust budget, which this past year was less than $60 million. In addition, by holding a series of innovative workshops, the agency has provided valuable guidance on numerous issues critical to the new economy such as pre-merger filing requirements, joint ventures and B2B (business-to-business electronic commerce) arrangements. "This mix of litigation and guidance is what Congress intended when it established the FTC in 1914," Parker said. "It visualized an agency that would litigate where necessary, but also one that could provide guidance to business and advice to Congress in a collaborative spirit. This dual role is particularly vital as antitrust faces the challenges of a fast-changing economy in the 21st century."
The year was dominated by a record number of mergers. By law, each sizeable merger must be reported to the federal antitrust agencies for their review before the transaction is consummated. In FY 2000, more than 4,900 filings were made, a record number. This continues a 10-year trend, in which the number of filings has more than tripled since 1991. Some of the largest mergers in history were proposed this past year. The value of reported merger transactions now exceeds $2 trillion each year -- an 11-fold increase in the past decade. To meet these new burdens, the Bureau has deployed its limited resources increasingly into merger review and litigation.
The FTC issued 43 second requests under the Hart-Scott-Rodino (HSR) pre-merger review process during FY 2000, a decrease from 45 such requests last year. "We recognize the need to manage the merger review process effectively. That is why one of our critical priorities this past year was to work with business, the private bar and Congress to improve and streamline the HSR process to reduce burdens and resolve investigations promptly," Parker said. To accomplish this, the Bureau implemented several procedures that provide for more rigorous internal agency review before document requests are made, and expedite and focus the review process.
The Commission sought five preliminary injunctions to block proposed mergers, a near record, and simultaneously litigated three cases. In nine other cases, transactions were abandoned when competitive concerns were raised. "We have to be able to litigate effectively to enforce the law, and did so in critical industries such as energy, supermarkets and consumer goods," Parker explained.
Backed by this willingness to litigate, 17 mergers were resolved by consent agreements. Commission staff also published a study of the divestiture process that provided valuable guidance on the effectiveness of past divestitures and current divestiture policies. Based on the study, the Commission strengthened the process by requiring up-front buyers or shorter divestiture periods in most cases. Most of the divestitures in the past year were in key "pocketbook markets" such as energy, supermarkets and pharmaceuticals.
Energy. The FTC brought several enforcement actions in natural gas, gasoline, electricity and other markets. The most important were Exxon/Mobil and BP/ARCO. In Exxon/Mobil, the largest industrial merger in history, the FTC required the largest retail divestiture ever, including more than 2,400 retail gas stations on the East Coast, in California and Texas, affecting the gasoline prices paid by more than 40 percent of all Americans. In the $27 billion BP/ARCO merger, the FTC required a "clean sweep" of all the assets involved in ARCO's oil production on Alaska's North Slope, resulting in the largest dollar-value divestiture ever. This ensured that upstream sources of supply remained competitive and that downstream refineries, retailers and millions of consumers on the West Coast would benefit from that competition.
The Commission also took steps to avoid manipulation of the major crude oil trading center in Cushing, Oklahoma through BP's substantial control over the pipeline and oil storage facilities in that area by requiring the divestiture of ARCO's pipeline and storage assets in that market.
Supermarkets. The FTC raised concerns in three supermarket mergers: Food Lion/Hannaford, Kroger/Winn-Dixie and Ahold/Pathmark. In Food Lion, the FTC required divestitures in several markets in the Southeast. The proposed Kroger and Ahold acquisitions were both abandoned, the first after the Commission filed an injunction action and the second after the firm learned that questions were being raised by the agency staff and that litigation was possible.
Pharmaceuticals. In the past year, some of the largest mergers in history involved pharmaceutical companies. In Hoechst/Rhone-Poulenc, a $32 billion merger, the FTC required divestitures in a $1 billion specialty chemical market and drugs used in the treatment of various blood-clotting diseases. The FTC's review of Pfizer's $90 billion merger with Warner-Lambert resulted in divestitures in several major markets, including: (1) the $7 billion market for antidepressants used to treat the 10 million Americans diagnosed with depressions each year; (2) the $270 million market for drugs used to treat Alzheimer's disease; (3) a future market estimated to be worth as much as $1 billion for drugs that both companies were developing for the treatment of solid tumor cancers diagnosed in more than 1.2 million Americans each year; and (4) the $150 million market for over-the-counter treatments for head lice infestation, which are used to treat eight to 12 million children each year.
While merger enforcement accounted for more than 70 percent of the FTC resources, the Commission concluded a record year of non-merger enforcement as well, securing 14 consent agreements and bringing one case through administrative litigation. Many of the most important enforcement actions involved distribution restraints, pharmaceuticals and health care.
Distribution. This past year, the FTC obtained enforcement results in several distribution-related actions. First, the Seventh Circuit upheld the FTC's decision against Toys-R-Us, in which it found that the nation's largest toy retailer had orchestrated boycotts of lower-priced club stores by major toy manufacturers. In a separate case, the FTC brought an enforcement action against the five major compact disc manufacturers to cease price advertising restrictions they had imposed on retailers in the $15 billion retail music market. In Nine West, the FTC and numerous states settled price fixing charges on popular lines of women's shoes, securing $34 million in redress for consumers. In McCormick Spice, the FTC settled charges that the nation's largest spice manufacturer had engaged in illegal price discrimination.
Pharmaceuticals. "Pharmaceutical competition is a critical component of our nation's efforts to control health care costs," observed Parker. "Not surprisingly, with increasing pharmaceutical costs this is an increasingly important part of our enforcement efforts." The FTC reached a tentative settlement with Mylan, the nation's second largest generic drug manufacturer, securing $100 million to compensate consumers for overcharges in two drugs used by millions of consumers each day. The FTC also challenged two agreements between generic and brand name drug manufacturers that led to higher prices for consumers. In one challenge, it filed an administrative complaint against Hoechst (now Aventis) and Andrx, alleging that Hoechst had agreed to pay Andrx to delay bringing to market a generic version of Hoechst's heart drug Cardizem-CD. In the other, the FTC settled charges against Abbott Laboratories and Geneva Pharmaceuticals involving a similar agreement that delayed the entry of a generic version of the drug Hytrin, which is used to treat hypertension and enlarged prostate - chronic conditions that affect millions of Americans each year, including over half of all men over age 60. The action against Abbott and Geneva alone saved consumers $100 million per year.
Health care. The FTC settled four cases against associations of health providers, who had agreed to boycott insurers or other third-party payors to obtain higher reimbursement for themselves, including groups of surgeons in Austin, Texas; dentists in Puerto Rico; chiropractors in Wisconsin; and physicians in Fairbanks, Alaska. All these matters were settled through agreements to end the illegal practices.
Guidelines and Workshops
The FTC serves more than an enforcement role. It provides valuable guidance by issuing guidelines, providing business advice and holding workshops on important policy issues to help educate both the business and legal communities as well as the agency staff. "Creating a dialogue on these important issues is often the most direct and meaningful means of providing guidance," Parker explained.
In the premerger area, FTC staff conducted a series of outreach lunches on premerger notification issues with business representatives and members of the bar in several cities. Staff answered questions on notification filing issues and are working actively with businesses and members of the private bar to make the process more efficient and effective.
Joint ventures and other collaborations play an increasingly vital role in the economy. Under the leadership of the FTC's Policy Planning staff, the FTC and the Antitrust Division of the Department of Justice issued "Antitrust Guidelines for Collaborations Among Competitors." These guidelines provide an analytical framework to assess the antitrust concerns that can arise through a variety of practices, including joint ventures, strategic alliances and other collaborations.
Business-to-business ("B2B") arrangements are one of the most dynamic changes in the economy. These computerized marketplaces have the potential to create real efficiencies by reducing transactions costs in procurement markets. The FTC staff have been asked to review an increasing number of B2B arrangements. In June, the Commission's Policy Planning staff held a two-day workshop to assess the new and quickly evolving role of B2B exchanges.
A second workshop was held on slotting allowances and other retailing practices. The workshop brought together retailers, manufacturers, marketing experts, lawyers and economists. The workshop provided a forum for discussion of slotting allowances and other evolving promotional practices and their potential competitive impact.
Copies of press releases detailing the cases referenced above, and the legal documents associated with them, are available at the FTC's Web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580; 877-FTC-HELP (877-382-4357); TDD for the hearing impaired 1-866-653-4261. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710.
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